Abstract

This paper will demonstrate that the increased strength of the European Commission and the pressure from a liberalized European market have had little effect on one aspect of national industrial policy, the level of national subsidies. This poses a paradox because national subsidies, also known as state aid, are a non-tariff form of market protection; and both liberalizing the European market and strengthening the Commission's role in Competition Policy are factors exerting pressure to reduce levels of initial protection. When the Single European Act was passed in 1986, the European market expedited the liberalization process, and European Community member states committed themselves to removing tariff and non-tariff barriers to trade. However, aid levels have not been substantially reduced, and some measurements show the level rising after 1986. It appears that the pressure to protect national markets from increased competition is greater than European and international pressures to reduce national subsidy levels. This paper analyzes the level of aid during the period 1981-92, that is, before and after increased European trade liberalization, and offers evidence showing the greater salience of national preferences of EU member states compared to the influence of supranational economic and legal pressures.